SPH REIT

SPH REIT: 1QFY15 results were in line, with distribution income at $33.5m (+2.9%) on revenue of $50.6m (+1.8%). Top-line was led by higher rental income achieved by both Paragon and The Clementi Mall, which were fully leased and saw rental reversion of 12.5% and 2.3% respectively. NPI margin rose 2.2ppt to 74.8%, led by savings in utilities, lower marketing and maintenance cost, partially offset by higher property taxes. Both malls in the REIT’s stable are fully occupied, with average lease expiry of 2.0 years by net lettable area (NLA). Aggregate leverage for the REIT stood at 26%, with average debt term of 3.8 years and overall interest cost of 2.35%. Going forward, the REIT guides that asset enhancement of Paragon to create some 5,000 sqft of net lettable area is progressing on schedule, and tenancies for this newly created space have been committed, which will contribute close to $1m of rental income annually from FY16. The retail environment however remains challenging, with international visitor arrivals dipping 3.3% y/y to 12.6m during the period Jan ’14 to Oct ’14, and while tourism receipts grew 2% y/y to $11.8b in 1H14, declines in spending on shopping (13%) and food and beverage (2%) were observed. At the current price, SPH REIT trades at 5.1% annualized yield and 1.1x P/B. Latest broker ratings CIMB maintains Hold with TP $1.06 OCBC maintains Hold with TP $0.99